ARDA’s keynote speaker
in Las Vegas, Fred Reichheld, made a compelling case for every business to build
the loyalty of key constituencies: customers, employees, partners, and
investors. After starting with customer loyalty, we began to address employee
loyalty two months ago, along with its potentially huge bottom line benefits,
such as higher employee retention and productivity.

Labeled the “high
priest” of loyalty by The Economist says, Reichheld, a Bain & Company Fellow,
has measured and demonstrated the strong and potentially highly beneficial
linkage to loyalty to profits and growth. His continuing series of articles and
books about this topic provide compelling evidence that support his contentions.

In the last two issues,
we outlined what we called 12 potential personnel paradoxes for building the
loyalty of your employees. In this issue, we continue with more, plus a
description of what makes two resort industry members great employers in the
minds of their employees.

Loyal Frontline Employees Are a Key Factor

The way these employees
perform and treat your prospects and customers determines whether customers come
back and tell their friends. Referral and reload sales can cut your sales costs
dramatically.

It makes sense and
saves - and makes - dollars. As outdated as the concept may have seemed in the
early days of timeshare (or in the midst of New Economy and Internet hype just a
few years ago), word-of-mouth advertising is powerful, credible, and incredibly
inexpensive. Customers who are treated right come back to buy again, and as
“likes attract likes,” they bring their friends.

Stronger employee
loyalty is linked to better performance in these regards, according to Reichheld.
Yet, he cited a New York Times survey of employees that indicates that many
businesses have a problem in this arena. Of those employees surveyed, 43% say
loyalty is good for employees, and 57% say it is not good for them.

If your company is an
average employer, you have just lost that election. This was no Bush-Gore or
Kennedy-Nixon squeaker. No, you have not just lost it, in electoral terms, it
was a landslide against you.

Reichheld asked the
audience at ARDA whether they could explain why loyalty is in the best interest
of employees. He said that most employers can’t.

Indeed, upon analysis,
it appears that principles for building employee loyalty have a foundation that
includes various seeming potential personnel paradoxes. Sometimes, what appears
sensible or logical is not always the case in real life.

If you have ideas for
other paradoxes, we would welcome the opportunity to feature them (with or
without attribution, as you choose) in future issues. Very simply, we believe
that improving your return on your human capital investment is simply a capital
idea.

Speaking
of Gems:
ARDA Employer of the Year

From among the
entries each year, ARDA singles out one company committed to motivating its
employees. It is not one step, but many, well executed over a period of time,
that produce a winner in this category.

Outstanding planning,
commitment and execution produce results that go well beyond the gala dinner
at each convention. Indeed, they go directly to the bottom line, as dedicated
employees are more likely to be loyal to your company in meeting your customer
service and revenue-generating goals. Loyal employees have a far better chance
to creating similar feelings with your customers, with the better sales and
profits Fred Reichheld has indicated.

In the last issue, we
highlighted the 2004 Employer of the Year, Fairfield Resorts. This time, we
feature the 2002 winner with these excerpts from their award presentations.
Learn from these leaders to strengthen your company and build the positive
image of the timeshare industry.

Royalty & Loyalty

Royal Resorts, the
2002 winner, is a company that not only knows how to motivate, they are a
force for personal achievement in the lives of their employees. They believe
that stimulated and satisfied employees take pride in their work and are
willing to go the extra mile to make a difference.

So they launched an
extensive employee training program that has received numerous accolades from
the government where their resorts are located. Besides providing instruction
in job skills, the program instructs in reading, writing computer literacy,
personal growth and leadership, unusual opportunities for workers in Cancun.
The company also offers free language classes so that every employee can learn
to speak English.

One result is an
impressive retention rate of more than 70% over ten years. But even more
impressive is the tradition of achievement that has been instilled in the
families of the employees. Thinking of the future, the company made
substantial contributions to Anahuac University in Cancun. They also started a
timeshare curriculum at the University, modeling it on the program at Cornell
University. The company created a credit union for staff members and even
opened a childcare center for employees in three of their centers.

Rounding out the last of our baker’s dozen ideas is this one. One of your
greatest treasures may also be among your most overlooked: your employees’
insight into innovative and imaginative ways to build your business and reduce
unnecessary costs.

Sometimes it is desirable, even vital, to call upon consultants of various
sorts. Their fees of hundreds of dollars per hour may be justified at times. But
they can be overused, and need to be deployed selectively to avoid being a
“weapon of math destruction” when it comes to your company’s finances.
A better approach on a regular basis may well be to turn to the individuals who
are already on your payroll. This is what the Center for Suggestion System
Development, Wellington, Florida, whose clients include many Fortune 500
companies and other leading organizations, says on their website,
suggestionsystem.com:

Employee suggestion programs can offer any organization a distinct competitive
advantage with their many benefits including cost savings, increased revenues,
decreased waste, improved quality, safety, customer service, employee
satisfaction and improved corporate culture. Employee suggestion systems have
been in existence for over one hundred years in one form or another, ranging
from the proverbial suggestion box to fully-developed suggestion systems
overseen by administrators, evaluators and idea specialists.

One
highly successful way to harness the energy and ideas of your employees is known
as “I-Power.” The letter “I” refers to many words, starting with “idea,” and
continuing with innovation, imagination, inspiration, and many more, that are
positive and begin with that letter. Developed by Boardroom, Inc., Stamford,
Connecticut, more than a decade ago, it is still in use because it works so well
for this 30-year company with over $100 million in revenues.

Boardroom has grown from just three employees to 72 and publishes newsletters,
such as its most popular, Bottom Line Personal, and varied books on healthcare,
taxes, personal, and financial issues. With nearly $1.5 million in revenue per
employee, the company is achieving phenomenal financial results.
Martin Edelston, Founder and Chairman, describes how I-Power works in his
company. “Everyone has to submit two ideas per week on average. Everything
qualifies. If someone says they need a bigger wastebasket, we consider that
because it helps give them support. Employees are paid for all ideas, up to
$10.” One of their key concepts is to encourage the flow of ideas and make the
two ideas per week standard the qualification for profit-sharing in quarterly
bonuses.

When
Edelston started this system, he says, “I thought it would build revenues and
save costs for the company. Instead, it wound up building teamwork in the
company. People get along much better together at work.” Coincidentally or not,
he notes that “there have been no divorces in recent years” among his
colleagues.

With
a 30-year old company, it would seem that the stream of ideas might run dry.
Edelston remarks, “If you’re behind in your ideas, the HR person gets you
together with your team, so you never fall short.”

As to
the impact on loyalty, he says, “The real measure is turnover. We’ve had whole
years with no one leaving the company. We employ very nice people. People like
recognition, and all ideas are written up and distributed every week. This is
easier now, thanks to email.”

The
system has American roots, in concepts of “continuous improvement” pioneered by
Edward Deming. While some domestic firms embraced and benefited from this
concept, it was Japanese companies that have achieved much success by
implementing.

To
learn more, you may wish to obtain one or more copies of the I-Power book (just
$24.95 for one copy, $19.95 each for 10 or more), just call 1-800-625-2424.

The
July 2004 issue of Inc. magazine featured Boardroom and the concept of “thinking
small” when it comes to ideas. The conclusion: “Forget about finding the killer
app. New research shows that smaller ideas pack a bigger payoff.”
Boardroom is a prime example.

As
Inc. notes, sometimes even small suggestions generate significant savings. “One
employee suggested the company cut the dimensions of its books by a quarter
inch. The smaller size led to lower postal rates and annual savings of more than
$500,000, Edelston says. What seemed like a small idea was, in fact, a very big
one.”

Should the idea generator get a percentage of that saving? No, according to Alan
G. Robinson and Dean M. Schroeder in their book Ideas Are Free: How the Idea
Revolution Is Liberating People and Transforming Organizations , for several
reasons:

It
can be difficult to calculate the savings or revenue enhancement. For example,
how big a percentage of your general and administrative expenses do you
allocate to the idea?

Higher financial rewards are not necessary to encourage many ideas. Consider
Boardroom’s experience, where the financial rewards are tiny, but the psychic
income and recognition are high, along with the flow: two ideas per week per
employee. How much could your company benefit if each of your employees gave
you that input every week?

Idea flow and actions produce better internal and competitive results.
Robinson and Schroeder found that response to ideas and action upon them were
better motivators. An employee waiting to find the blockbuster idea may be
discouraged from providing any input. Consistency and continuous improvement
are far more important, and also better from a competitive standpoint. Your
competitors may open a new resort project near yours if they learn you are
getting huge sales every month. Less known small improvements may get less
publicity, but produce far better results over time.

Seemingly small ideas may have the biggest impact. Sometimes, you have to look
at the bigger picture. Boardroom’s annual half million-dollar saving on
postage, cited above, is but one example. By way of analogy, the revenues on
diamond sales are in the billions of dollars per year. This is a highly
profitable business for DeBeers and other producers, as well as diamond
wholesalers and retailers.

Most
of the gems are from a fraction of a carat to several carats in size. Only very
rarely does a Hope Diamond size stone - over 45 carats - appear. You could go
broke if you waited until you found that type of jewel. The so-called “Curse of
the Hope Diamond” may apply to you and your business if you only search out
blockbuster ideas.

For
your business, the real gems are more likely to be small ideas. In combination,
they will produce sparkling results. Occasionally, they may even uncover a
relative Hope diamond if you listen to employees, and even to your owners,
guests and other customers.

Remain open to new ideas, indeed seek them out, and recognize the person who
suggests them in appropriate ways. Do so proactively, and this approach will
generate far more “carats” will be far greater than any “stick” - or “schtick” -
could produce.
Listen also to your customers, of course. It is not just the easy ones, or the
“early adopters.” Rather, according to author and Harvard Business School
Professor Clayton Christensen, a company should should seek a broader look at
customers, including the seemingly “most unsophisticated ones.”

In an
interview in Inc. magazine in connection with his new book, Seeing What’s Next,
he says, “Paying too much attention to early adopters can cause a company to
miss disruptive developments occurring at the low end of the market or on the
fringe. And they are what really drive industry change. That’s why smart
companies pay attention to the least demanding customers in their core market
and to people outside the core market.”

A
similar rationale and benefit underlies the approach suggested above as to
company employees. Artificial, top-down misconceptions may cause you to miss
great opportunities. Similarly, survey satisfaction levels of both employees as
Shell has done, and get ideas from all of them.

Linkage between Employee and Customer Satisfaction:
Anything but a Game at Shell Hospitality

An
excellent report by Marge Lennon clearly establishes the nexus between happy -
and loyal - employees and extremely satisfied guests. In our sister publication,
Resort Trades’ Management & Operations, she writes, that this is “not merely
wishful thinking, but has been documented via mountains of survey results [in]
the past seven years in [Shell’s] company-wide employee and guest satisfaction
monitoring programs” conducted through Dallas, Texas based Unifocus.

She
reports that satisfaction of both employees and customers is at or above 90
percent, according to the surveys. We highly recommend that you read her entire
article to learn more about the linkage.

Lennon quotes Shell Hospitality President Steven Hicks, “We believe we have
developed a culture that is conducive to maintaining happy, productive employees
who feel they are part of the Shell family. By continuously monitoring employee
satisfaction levels and striving to make improvements in every area, we have
been able to keep our pulse on the heartbeat of our organization … our people.
This program has also resulted in our company enjoying higher-than-average
industry satisfaction levels from everyone who visits our Shell Vacations Club
properties.”

She
quotes him with further comments on the benefits of this ongoing monitoring and
responsive actions, “Developing this level of loyalty and trust with our
employees encourages them to communicate more openly with management on an
on-going basis between the dates of the surveys. While the cost of these surveys
is not small, they are proof that Shell Hospitality holds its employees in high
esteem.”

Personnel benefits of this approach include reduced turnover, better employee
performance, and higher morale throughout the organization, with better
productivity resulting. These are some of the critical points Lennon reported
that Shell measures to gauge employee satisfaction:

My
health benefits package is good

I
am paid fairly for what I do

I
like working here

I
have the training I need to do my job

I
feel that the company will address the results of this survey

Confidence in company leadership

Recognition of performance

Interest level in job,

Internal communications.

With
high ratings in these categories, it is no surprise that Shell sales and profits
have also improved, as customers have responded positively to more energized and
motivated employees. With about one-third of all Shell Vacation Club timeshares
shares to existing owners, overall marketing costs have dropped.

Potential Personnel Paradox 14:
To Build Better Employee Relations, You Need Better Walk and Talk from Top to
Bottom

Great, loyal employees can help you make millions, or billions, as Bill Gates as
proven. Yet, whether or not if you have early stage options that will mirror
those Microsoft stock options that turn many employees into multimillionaires,
you have powerful tools at your disposal to build loyalty and your company.

HR -
human relations - holds many keys to this process. Handle them correctly, and
you will unlock higher revenues and profits. Put the wrong key in the lock, or
turn it the wrong way, and you will not be able to open the door to better
results. You may even face adverse results.

In
the HR realm, problems may include high turnover, poor morale, employee
dishonesty, and even litigation - perhaps even class action suits - from
disgruntled workers. Defense costs, judgments, and settlements can readily mount
into the tens or hundreds of thousands, or even millions of dollars.

Joni
Johnston, Psy.D., President and CEO, WorkRelationships (workrelationships.com),
Del Mar, California, says, “Sexual harassment costs the typical Fortune 500
company $6.7 million dollars a year in absenteeism, lowered productivity and
turnover. Legal fees for defending a sexual harassment average $250,000, and
judgments routinely exceed $1 million. Workplace violence costs companies $4
billion in 1992 alone. Fifty-seven percent of companies will face an
employment-related lawsuit within five years.” Johnston is an expert in the law
and psychology of employee management, as well as related litigation.

As if
that’s not bad enough, just consider the adverse publicity when the news media
start reporting on the charges against you, as they have with Texaco, Wal-Mart
(alleged sexual discrimination, now pending), Denny’s and Bally’s health clubs
(claims of racial discrimination) among others. Whatever the truth, the massive
blast of negative “news” can chill employee and customer relations.

John
Edwards and his “band of brothers” - and sisters - in the class action field are
all too willing to convert your minor and isolated situation into a cause
celebre. They willingly take up the gauntlet for the rights of workers,
customers, or others who they paint vividly as “victims” of your purported
abuses.

Dr.
Johnston says, “It’s not just what you say and do, it ‘s how you do it. When
employers are sued for wrongful termination or when employees quit, employers
often rationalize that the employee would have done so no matter what they did.

She
notes, “In reality, it is the way employers - particularly managers - fire,
discipline, communicate and take other personnel-related actions that determines
how loyal an employee is and how likely it is that s/he will sue.”

Johnston adds, “Your manager’s behavior trumps employer policies. A workplace
conduct policy, an ethics program, or a discrimination prevention program mean
little if managers are not acting congruently with them. In fact, these attempts
at goodwill can backfire and create cynicism on the part of employees if they
are not backed up with actions.”

Practice What You Preach

Another way of stating this principle is to start by communicating the right
message. You should then “practice what you preach.” Focus on your people, not
on your profits, and you will have better people and profits. This seeming
cliché, all too often ignored, is the heart of the message and the title of a
book from author and consultant David Maister.

Maister says that too many companies believe that the focus on customer service
itself will achieve superior service. He says, “To get great client service, it
turns out, you must first energize your people to deliver it…The prime mover of
this entire chain of effects: The skills and behavior of the manager in creating
and driving everything else.”

He
adds that of all a business’s goals, such as making money, attracting and
developing talented staff, “The least well done are those related to managing
people. Yet not only are people a key link in the chain of activities that
create profits, but we are also living through a war for talent – a people
crisis – where every business is short of people.”

His
findings and views are consistent with those of Fred Reichheld and Joni Johnson.
As with Reichheld, the companies that capture the employees’ spirit also achieve
better sales and profits.

Maister’s principles include the following, which every business should study to
become more successful. These principles (on a few of which we have commented
elsewhere in this article and series) could be considered further paradoxes in
several ways, in part because so many employers do not follow them consistently,
if at all.

Management is viewed as operating in accordance with the firm’s philosophy and
values. Executives practice what they preach, and there are no disconnects
between the walk and the talk.

Management is trusted by those they manage. Individual managers act in the
interests of their group, not just to advance the manager’s personal
interests.

People’s personal potential is being fulfilled and realized, according to the
people being managed.

There is a high degree of loyalty and commitment, again driven by individual
managers (Note the loyalty connection here, fully consistent with what Fred
Reichheld has concluded, and the manager key that Joni Johnston focused on).

Compensation systems are equitably managed.

Firms do not compromise their standards in hiring simply to meet a capacity
need. People quality is seen as high.

Maister concludes, “Evidence shows that these are high standards that few
managers (or management teams) reach consistently. They are not easy to
achieve…but when they are,…they cause (yes, cause) a demonstrable, measurable
improvement in financial performance (including growth rates as well as
profits).” Improved results should appeal to any executive, whether in timeshare
as a developer, in any of the myriad businesses that work with developers and
marketers: exchange, financing, interior design, collections, telemarketing,
direct mail, Internet, housekeeping, and many more.

A
focus on long-term results, not short-term gains, whether your company is public
or private, will produce much better sales, profits, and enterprise values. Yet,
too many people, on and off Wall Street, look first to short-term results.
The next quarter is of primary importance. “Street numbers,” with estimates of
projected profits are the talisman of success or lack thereof.

In
all too many cases stock prices have moves that are disproportionate to changes
in actual earnings in comparison to estimates. One example a few years ago in
the restaurant segment of the hospitality industry was Rainforest Café. The
actual results were only a few percent less than the analyst’s had predicted.

Unfortunately, the results “drove the management ape” because the stock price
fell in significant double-digit numbers.
This is not the hallmark of many of the most successful companies. They use a
significantly result, often achieving better short and long-term results. Case
in point: The Washington Post Company history of revenue and stock price growth
over the last 30 or 40 years.

Company chairman Donald Graham says, “In contrast to 90 percent of public
companies, we don’t care whether we meet, exceed or fall short of Wall Street
estimates. We do not manage our company to earn a particular amount for the next
quarter.”

He
continues, “We run our company for the shareholders, not the analysts. In the
long run, to quote Warren Buffett, ‘A company’s shareholders bring it the
shareholders it deserves.’ Focus on them, and you’ll manage the company for the
long-term. Give them all of the information they need, and you will get a
different type of shareholders.”

In
other words, run your business for the short-term, and your stockholders will
have similar philosophies. No doubt, your employees will also reflect your time
horizon.

Mr.
Graham believes that people running the company need to run the company and
avoid Wall Street numbers and so-called earnings and revenues “guidance.”
Corporations that follow the Wall Street herd with religious fervor are, in his
experience, misguided.

He
cites as proof the success that has made Warren Buffett, the wealthy and
respected Chairman of Berkshire Hathaway, Omaha, Nebraska, legendary. Over the
last 30 years, Berkshire Hathaway stock has gone up from $50 a share to over
$90,000.00 a share. That is an incredible increase of 1,800 times, not merely
1800 percent (not bad either, but a “mere” 18 times!), but the seemingly
unbelievable but true rise of 180,000 percent! Buffett is a shareholder of the
Washington Post, and Graham says that it has been run the same way.

Just
imagine how you would feel if you and your team were able to increase your
enterprise value anywhere in that range over a period of one or more decades.
You might even be inspired to visit Omaha, whether or not you have any owners
from that area.

Potential Personnel Paradox 16:
HR Problems are Cheaper to Prevent than to Cure

Yes,
the classic old ads featuring the Fram oil filter man were right. Remember what
he said? “You can pay me now, or you can pay me later.”

The
small cost of an oil filter in keeping your oil clean, as part of regular oil
changes, is much cheaper than what you will pay for The entire oil change,
including a new filter, may run from $15 to $30. Major engine repairs and
related mechanical problems may add up to hundreds or even thousands of dollars.

A
proactive approach before problems arise may be the most cost-effective way to
deal with many areas, including personnel issues.

The
points made by Dr. Joni Johnston above Paradox 14 bear repeating here because
they are so compelling as examples of the costs of not taking a proper
preventive approach: “Sexual harassment costs the typical Fortune 500 company
$6.7 million dollars a year in absenteeism, lowered productivity and turnover.
Legal fees for defending a sexual harassment average $250,000, and judgments
routinely exceed $1 million. Workplace violence costs companies $4 billion in
1992 alone. Fifty-seven percent of companies will face an employment-related
lawsuit within five years.”

Another way to look at this and prevent or minimize problems is to conduct
regular employee satisfaction surveys, as Shell as done. The results reported
above from Marge Lennon’s excellent article, underline the huge bottom line
benefits of using a proactive approach.

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